2011 (1) TMI 1466 - AT - Income Tax

Summary

Issues Involved: Appeal against CIT(A)'s order confirming ad-hoc disallowance of expenditure u/s 14A for earning interest income on tax free RBI bonds for AY 2003-04.

Summary:
The appellant, an assessee, filed an appeal against the CIT(A)'s order confirming the ad-hoc disallowance of &8377; 87,170/- made by the AO on account of alleged expenditure presumed to have been incurred for earning interest income on tax free RBI bonds. The AO disallowed the expenses based on the assumption that the assessee must have incurred expenses on account of bank charges and bank interest, as no income can be derived without incurring any expenses. On appeal, the CIT(A) upheld the AO's decision citing the decision of the Special Bench of the Tribunal Mumbai Bench in the case of Daga Capital Management (P) Ltd. The assessee contended that no actual expenditure was incurred for earning the interest income from RBI tax free relief bonds, as the interest was accrued on investments made earlier. The ITAT Delhi, after careful consideration, found that no actual expenditure was incurred for earning the interest on the tax free bonds, as the interest was accrued on investments made earlier and not realized. The ITAT Delhi also noted that the decision of the Special Bench in the case of Daga Capital Management (P) Ltd. had been reversed by the Hon'ble Bombay High Court, stating that Rule 8D is applicable only from AY 2008-09. Therefore, the disallowance made by the AO was deleted, and the appeal filed by the assessee was allowed.

Decision pronounced in the open Court on 28th January, 2011.